Stockwatch Energy today
Energy Summary for Dec. 2, 2022
2022-12-02 20:10 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for January delivery lost $1.24 to $79.98 on the New York Merc, while Brent for February lost $1.31 to $85.57 (all figures in this para U.S.). Western Canadian Select traded at a discount of $27.50 to WTI, unchanged. Natural gas for January lost 46 cents to $6.28. The TSX energy index added a fraction to close at 256.93.
Oil prices notched their first weekly gain in four weeks, but were still down in today's session, pressured by rumblings about Sunday's OPEC+ meeting and by a stronger U.S. dollar (which lowers demand from non-U.S. buyers). The abrupt decision by OPEC+ to switch to a virtual-only meeting is stirring up speculation that the group is not planning any major announcements, in contrast to hints last week that it might deepen its production cuts. Meanwhile, the European Union has reached a tentative deal to cap Russian oil prices at $60 (U.S.), with eyes now turning to Russian President Vladimir Putin for a reaction. He has previously threatened to disrupt supplies to countries that support the cap. Yet the proposed cap is actually higher than the current price of Russian crude, giving him room to dismiss it as meaningless.
Here in Canada, Andy Mah and Mike Belenkie's Alberta Montney producer, Advantage Energy Ltd. (AAV), lost 22 cents to $11.50 on 1.85 million shares. Investors had a lukewarm reaction to its 2023 guidance and new "three-year strategic plan." The numbers were broadly in line with management's previous forecasts of 10-per-cent annual production boosts, with the official goal now being to get to 75,000 barrels a day by 2025, up from 59,000 to 62,500 barrels a day in 2023.
Management also included some of its usual fuzzy foreshadowing around "shareholder returns," declaring Advantage to be "in a strong position" to "maximize" them. It did not particularly clarify its meaning, but seemed to show a preference for share buybacks over dividends. Although Advantage got its start decades ago as an energy income trust, it converted to a corporation and shed the "income" tag in 2009, showing no subsequent interest in a dividend. It showed no interest in buybacks either until April of this year, when it launched its first regular buyback program. This was followed last month by a separate, special buyback program. The new update indicated that management will renew the regular program next year and "may" pursue additional special ones.
All in all, the update held few surprises, which is likely just as Advantage wanted. Lately it will have seen fellow Montney producers garner much more volatile reactions when announcing their plans. Sometimes the risk paid off: Earlier this week, for example, Spartan Delta Corp. (SDE: $15.51) soared after announcing a "strategic repositioning process ... with a view to maximizing and accelerating value." It plans to consider everything from a restructuring to an outright sale to business as usual (possibly with a new dividend if it chooses that option). By contrast, Pipestone Energy Corp. (PIPE: $3.35) lost one-fifth of its value in a single day last month, after announcing a "shift in focus toward delivering meaningful returns to shareholders." It unveiled a dividend but also "moderated" (lowered) its production ambitions.
Incidentally, one of Pipestone's major shareholders has been treating the drop as a buying opportunity. Pipestone was trading above $4.50 prior to its unpopular announcement on Nov. 9. From Nov. 14 to 30, according to new SEDI filings, GMT Capital bought 1.04 million shares at an average price of about $3.56. It now holds 52.3 million of Pipestone's 278 million shares. All of GMT's latest purchases remain underwater, as Pipestone's stock has crept even lower lately, closing today at $3.35.
This drop has come despite a recent effort to win back investors through share buybacks. Last week, Pipestone trumpeted the launch of a program to buy back 13.9 million shares, or 5 per cent of its share count. Investors remained unwon, in part because 13.9 million is only a fraction of the 93.9 million shares that Pipestone previously issued in October. (That was when GMT and another major shareholder, Riverstone, exercised conversion privileges related to a financing from 2020.) At a 5-per-cent annual buyback rate, it would take eight years for that dilution to be clawed back.
In other buyback news, the Lundin Group's International Petroleum Corp. (IPCO) added 10 cents to $15.38 on 98,900 shares, after securing TSX approval to repurchase up to 9.3 million of its 137 million shares. Management told investors last week that it was seeking this approval. This came as no surprise, as the prior share buyback was about to expire on Dec. 2 -- today. The company made good use of the program and bought back a total of 9.4 million shares, out of a maximum of 11.0 million.
Another Lundin promotion got a nice bit of news after hours. In its latest quarterly rebalancing announcement, published today after the close, the S&P/TSX Composite Index announced that it will be adding Africa Oil Corp. (AOI), up three cents to $2.90 on 602,900 shares. The addition will take effect on Dec. 19.
Index additions create buying support from index-tracking funds. Such funds have been buying plenty of energy stocks lately, as the S&P/TSX Composite Index -- the self-billed "headline index for the Canadian equity market" -- has now added 18 energy stocks in 15 months. Energy's weighting in the index is now about 18 per cent. This is up from a low of about 10 per cent during the 2020 downturn, though still down from a high of about 27 per cent in 2014.
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